A Manufacturing Town in the Lakes Region
Watertown sits between Lake Kampeska and Pelican Lake in Codington County, along Interstate 29. The Census Bureau estimated about 23,700 residents in 2025, with about 29,600 in the county. For a city its size, Watertown makes a lot of things: utility trucks and aerial equipment, truck bodies, electronic assemblies, signs, engineered cabs, steel tubing and ethanol. It is also a regional centre for health care, retail and technical education. South Dakota has no income tax, so the tax questions here are about federal returns, sales and excise tax, payroll and, for many firms, Minnesota. BOMCAS serves Watertown businesses and households remotely.
What applies in every corner of the state is set out in our South Dakota overview; here the subject is Watertown and Codington County.
Employers That Shape the Work
State labour data compiled by the Watertown Development Company list Terex Utilities, Dakota Bodies, Spartronics, Persona Signs, Sanford Health Watertown, Lake Area Technical College, Hy-Vee, Walmart, the city and the school district as the ten largest establishments in Watertown. Countywide, the list adds Prairie Lakes Healthcare System, Crenlo Engineered Cabs, Dakota Tube, Würth Electronics Midcom, Premier Bankcard, Sentry Crane Services, Jenkins Living Center and the Dakota Sioux Casino, run by the Sisseton Wahpeton Oyate north of town. Glacial Lakes Energy, a farmer-owned ethanol producer with more than 4,000 shareholders, has its head office and first plant here. Lake Area Tech enrolled a record 2,387 students in fall 2026, drawn from 64 of the state's 66 counties and from other states and Canadian provinces.
Watertown's Local Taxes
- Most purchases in the city are taxed at 6.2 percent: the 4.2 percent state rate plus Watertown's 2 percent municipal tax.
- Meals, drinks, lodging and admissions carry the city's additional 1 percent gross receipts tax, for 7.2 percent.
- Hotel rooms and other lodging under 28 days also carry the 1.5 percent state tourism tax, for 8.7 percent in the city.
- The Watertown Business Improvement District adds $2 per room night at hotels and motels with at least 25 rooms, remitted to the city Finance Office by the 20th of the next month and passed to Visit Watertown for event promotion.
- Cabins and short-term rentals on the lakes outside city limits charge state sales and tourism tax but not the city's taxes.
- No county tax: in the November 3, 2026 election, Codington County voters rejected Referendum 83, a proposed half-percent county sales tax for property tax relief, with unofficial returns showing about 60 percent voting no.
- The state rate is still scheduled to rise to 4.5 percent on July 1, 2027.
Lakes, Events and Visitors
Summer brings boaters, anglers and cabin owners to Lake Kampeska and the other glacial lakes, and the city's hotels also fill for tournaments, conventions and visits to the Redlin Art Center and Bramble Park Zoo. Restaurants, marinas, bait shops and rental owners have busy months, then quiet winters, and their sales tax filings should still continue through the off season.
Minnesota Is Close
The Minnesota border is less than an hour east on U.S. Highway 212. Watertown manufacturers ship there, contractors and service crews work there, and some employees live there. Minnesota taxes wages and business income earned within it, and it does not have a reciprocity agreement with South Dakota. Our payroll, sales tax and business tax pages explain what that means locally.
City Licences
Watertown issues licences for specific trades and businesses rather than a general business licence. Residential contractors need an annual city licence that expires each December 31, with proof of at least $500,000 of liability coverage per occurrence, workers' compensation and a state excise tax number. Gas fitters, electricians, sign installers, house movers, transient merchants, pawnbrokers, taxi and ride-hailing companies, mobile home courts and liquor establishments have their own licences, and building permits are handled online through the city's Building Services.
How BOMCAS Helps in Watertown
Watertown clients usually start with bookkeeping and job costing, sales and use tax and payroll for shift and seasonal staff. After year end, we prepare business returns and personal returns, then look at planning for equipment, succession and lake property. If filings have slipped, begin with catch-up filing; students, workers and cabin owners from Canada can read about Canada–U.S. tax.
Our statewide South Dakota pages go further on business tax, individual tax, sales and use tax, bookkeeping, payroll, tax planning, catching up on filings and cross-border tax.
Watertown Questions
What is the sales tax rate in Watertown?
Most sales are taxed at 6.2 percent. Restaurants, bars, lodging and admissions add the 1 percent municipal gross receipts tax, and lodging stays under 28 days also carry the 1.5 percent tourism tax.
Is there a Codington County sales tax?
No. Voters rejected Referendum 83, the proposed half-percent county sales tax, on November 3, 2026. Unofficial results showed about 60 percent voting no.
Does a lake cabin rental outside Watertown charge city tax?
Not if the cabin is outside city limits. Short stays still carry the 4.2 percent state sales tax and the 1.5 percent tourism tax.
Do Watertown contractors need a licence?
Residential contractors need an annual city licence with insurance, workers' compensation and an excise tax number. Other trades have their own city or state licences.
Talk to BOMCAS About Your Watertown Taxes
In the southeast corner of the state, our Sioux Falls pages cover South Dakota's largest city, its split between Minnehaha and Lincoln counties, its own lodging tax and a workforce that commutes in from Minnesota and Iowa.
On the other side of the state, our Rapid City pages deal with Black Hills tourism taxes, the hotel improvement district, Ellsworth Air Force Base and crews working across the Wyoming line.
In eastern South Dakota near the Minnesota line, our Brookings pages cover South Dakota State University, the city's manufacturing employers, its pillow tax for larger hotels and work across the nearby Minnesota line.
In the northeast, our Aberdeen pages deal with farm cooperatives and equipment dealers, 3M and other plants, two hospitals, Northern State University, the city's hotel and downtown district taxes and jobs across the North Dakota line.
On the Missouri River across from Nebraska, our Yankton pages look at Avera Sacred Heart, the city's manufacturers, Mount Marty University, Lewis and Clark Lake businesses and the many households that live or work on the Nebraska side.
Send BOMCAS a short note about your Watertown business or household and we will reply with next steps and what we need for a quote. Use the contact page or the form below, call 780-667-5250 or write to info@bomcas.ca. The South Dakota overview lists all our local services. This page is general information, not advice for your own facts.